Return on Assets (ROA)
Measures profit generated per dollar of total assets.
Definition
Return on assets shows how efficiently a company uses its total asset base to generate profits. For banks, where the balance sheet is the business, ROA is a core efficiency metric. It strips out the effect of leverage, making it useful for comparing banks with different capital structures.
Formula
ROA = Net Income / Average Total Assets × 100
Why It Matters
An ROA of 1% or above is considered healthy for a bank. ROA above 1.5% is exceptional. It is the clearest measure of how well a bank's lending and investment activities translate into bottom-line profit.